Dear Pete:
I’m 57 years old, my kids are grown and out of the house, and I don’t really feel like I need all the life insurance I once carried. I currently have $500,000 worth of life insurance, but once the kids moved out and I fully funded my retirement income strategy, the half million seems excessive. It’s just my wife and me now, and we have plenty of money set aside for retirement. Should I keep it just in case? It’s term insurance and it is about to increase in price.

— Michael, Houston, Texas

Dear Michael:

You wouldn’t be the first person who’s excited about not needing life insurance. You see, most people need it, but don’t want it. They manufacture all sorts of reasons why life insurance isn’t right for them, and more commonly, ignore the obligation altogether.

I think you’re potentially in a position to lessen the amount of coverage you have, but you still need some amount of coverage.

Life insurance is meant to help your family accomplish your financial goals whether you’re there to wear the party hat, or not. When you were a younger man with a growing family, you didn’t have the assets you do now. That meant that if you died without life insurance, the only option to pay for your kids’ education would have been student loans, and your wife’s retirement would have suffered a tremendous setback, too. Not to mention the web of complexities you would have left for a widow trying to raise young children after arguably the worst and most emotional time of her young life.

I can assure you, the death of a young parent, or anyone for that matter, is not a blip on the financial radar. I’ve been there to pick up the pieces for those with life insurance and for those without life insurance. Both situations are awful, but the ones with life insurance at least allow the survivors to breathe.

It’s important to think through the reasons why a person needs life insurance. Obviously, I’ve already addressed survivor needs and goal completion. Don’t forget about covering debts, tax planning strategy, charitable giving, wealth transfer, and those nasty and uncomfortable final expenses. All of the other strategies I just mentioned have varying degrees of complicatedness, but it’s the final expenses that somehow always get overlooked.

Michael, we don’t really know how our last chapter will be written. We don’t know whether it will be long and drawn out, short and quick, or even expensive or cheap. That’s where your question gets a bit hairy. Whereas you likely don’t need to keep paying for a $500,000 term policy, in perpetuity, it could make sense to secure a more modest amount of permanent coverage, if a long and drawn-out final chapter could compromise your wife’s financial security.

If you’re confident you don’t need to continue your current coverage at its current face amount, and some of the other strategic reasons to maintain significant life insurance coverage don't resonate with you, consider converting your $500,000 term policy into a smaller permanent policy. If your policy is still in the allowable conversion period, you’ll be able to simply switch a portion of your coverage to a permanent plan, without the need for medically requalifying. This is important. If you’re like most people, your body has gotten older as, well, you have. That means you might be less healthy than you were when you purchased the term policy years ago to protect your family. By converting your policy, you’ll be able to convert at your old health rating. That’s a good thing.

However, it’s possible you won’t be able to convert and keep your old health rating, which means you’ll need to medically qualify for the new amount of coverage. Depending on your current quality of health, that might not be great. In some cases, if your health has changed significantly, you may be asked to pay more premium for your smaller permanent policy than your bigger term policy. Certainly a frustrating outcome, it’s not frustrating enough to ignore the realities of your permanent life insurance need.

Don’t be so excited to get rid of life insurance that you ignore the changes in your need. Grab some permanent coverage and be glad that you’ve been there to celebrate your family’s monumental moments.

Have a question for Pete the Planner? Email him at AskPete@petetheplanner.com or visit petetheplanner.com.

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